Financial Highlights

In a year impacted by lower selling prices and the import of cheaper steel products, Masteel remained one of the few domestic steel players who displayed resilience.

Furthermore, for FY2012, the Group recorded a historical achievement, our best-ever revenue to date, when we posted a 4.7% increase in topline to RM1.3 billion. This was achieved mainly due to higher sales volume in the local market.

The rollout of many Economic Transformation Programme (“ETP”) initiatives during the year under review has been a growth catalyst for the local construction industry, which – in turn – spurred demand for steel bars.

Exports, however, remained challenging, contributing less to topline, RM221.7 million in FY2012 versus RM434.2 million previously. This was largely due to heavy competition in the overseas marketplace.

Masteel’s continuing investments in new technologies and processes allowed us to weather the turbulence within the steel sector relatively well. Additionally, a strong management team has also helped us side-step issues that have impacted negatively on other peers.

This allowed the Group to sustain a commendable net profit at RM24.3 million in FY2012, compared to RM24.4 million previously.

Growth Strategies

As Malaysia moves closer towards 2020, and its target of transforming itself into a developed nation, the demand for steel bars that are needed for nation-building projects can only trend upwards. As the countries around us continue to prosper and develop, steel bars will be needed for infrastructure upgrading works for some time to come.

To meet with this expected demand, Masteel invested approximately RM200.0 million to grow our meltshop capacity to 700,000 metric tonnes (“MT”) of steel billets per year from 550,000 MT previously. The upgrading of this facility in Klang, Selangor, is scheduled for completion in December 2014.

The Group is also building our second rolling mill adjacent to the meltshop. This new facility, which is slated to go operational in mid-2014, will boost Masteel’s annual steel bar production capacity to 550,000 MT from 350,000 MT currently.

These new capacities will allow the Group the flexibility to both meet existing and expected future local and regional demand, as well as to seek out new export destinations for our steel products.

Lastly, for FY2013 and beyond, Masteel will continue to seek out other synergistic opportunities that can enhance the Group’s core business so that we can bring additional value for our shareholders.

Corporate Updates

RM500.0 million Offtake Agreement with Trafigura Pte Ltd

On 27 June 2012, Masteel announced the signing of a RM500.0 million offtake agreement between the Group and the world’s second-largest commodities trader, Trafigura Pte Ltd, which will see us selling steel products to the latter over a three year period.

The agreement, which is expected to contribute positively to earnings from FY2013 onwards, will not only provide export income for Masteel but also see Trafigura taking up some of the Group’s new excess capacity.

The Group believes strongly in this RM1.3 billion proposal, which is being considered by the relevant Malaysian Government bodies, as it is expected to generate recurring income for the JV partners over a 37-year concession period.

A breakthrough was made on 6 November 2012 when MCN was offered a 14.3 hectare plot of land owned by Perbadanan Aset Keretapi (“PAK”) in Kempas, Johor, by the Ministry of Transport Malaysia (“MOT”) for the construction of the JV’s proposed Iskandar Malaysia commuter train depot.

MCN has submitted the necessary applications to PAK for the plot in question, which is seen as sufficient for the site of the depot.

On 18 December 2012, MCN received a letter from MOT to confirm its agreement to our project in Iskandar Malaysia.

Private Placement of Shares

On 9 November 2012, Masteel announced the private placement of up to 31.6 million shares of RM0.50 each, or approximately 10% of the Group’s issued and paid-up share capital.

Around 7.2 million shares were issued under this corporate exercise at an issue price of RM0.86 per share, which raised RM6.2 million for our working capital needs.

Prospects

Masteel is optimistic on the state of the local steel industry and the Group’s own prospects in 2013.

The initiatives by the Malaysian Government to curb the importing of certain cheaper steel products into the country is expected to improve the pricing of the domestic steel sector and enhance the income of the Company.

The estimated RM150.0 billion worth of ETP projects slated to rollout this year – such as the KL MRT, the Tun Razak Exchange, the Light Rail Transit (‘‘LRT’’) extension and the 1Malaysia People’s Housing (‘‘PR1MA’’) programmes – will drive the demand for high-tensile steel bars that is produced by Masteel.

For example, on 9 November 2012, Masteel won a RM6.7 million contract from the Mass Rapid Transport Corporation Sdn Bhd to supply Grade 500 high-tensile steel bars to several KL MRT sites – namely V1-Sungai Buloh, V2-Kota Damansara and V5-Cheras.

This was the Group’s first order for this particular ETP initiative and, since then, given our exemplary track record in producing high-quality steel bars, we have continued to supply to the project.

Additionally, we are optimistic of the regional demand for steel bars, which are required by Malaysia’s neighbours for their own nation-building initiatives. With Masteel’s CAPEX initiatives in place to expand our steel billets and steel bars production capacities, the Group will have the flexibility to tap into more opportunities within both the domestic and regional markets.

Our strategic location within the Klang Valley – where many ETP projects are rolling out and where we are close to an established land, sea and air transportation network – accords to Masteel distinct advantages.

Notwithstanding the bright prospects in the local market, we are certainly circumspect of the challenges ahead. This includes the state of the global economy, which can have a negative trickle-down impact on steel bar consumption.

However, given the strategies we have implemented, the strong fundamentals of Masteel and the positive overall outlook, FY2013 is expected to be a promising year for the Group.